A year after new regulations, for-profit colleges still a bad deal

July 12, 2012

About a year ago, the Education Department started cracking down on career colleges -- community colleges, vocational institutions and other schools that offer non-degree certificate programs intended to prepare students for a specific career or trade -- that left students in excessive debt and without gainful employment.

The new rules limited federal aid to programs where at least 35 percent of students are repaying their loans and where graduates are spending no more than 12 percent of their total income, and 30 percent of their discretionary income, on loan repayment. If schools fail on all three counts, they lose their federal aid. The rules were widely seen as targeting for-profit institutions that investigations had revealed offered expensive programs of questionable benefit to students. As Suzy reported the other day, there's some economic research to back up this suspicion.

The first round of data on whether such programs are living up to the new standards came out a couple weeks ago and it's pretty ugly. Here's the breakdown of loan repayment rates:

The median here is 37.78 percent, just barely above the cutoff set by the federal government. And the standard here, it's worth emphasizing, is ridiculously low. For a student to qualify as "repaying" a loan, he or she must have spent at least $1 in the past year repaying the loan. So a student with $100,000 in debt who gives a Sacagawea coin to the bank counts in the above numbers. And at the average program, 62.22 percent of students couldn't even do that.

The loan repayment as percentage of total income numbers are also disheartening, as the following chart shows.

The largest single group is paying an average of zero percent to service their loans, but again, since people aren't repaying their loans it's not surprising that the median debt payment is $0. I didn't include programs where the average payment was above 30 percent so as to make the chart clearer to read, but there are 17 of them, and two -- East West College of Natural Medicine in Sarasota, Fla. and the business degree program at the Computer Systems Institute in Skokie, Ill. - have average fees that top 50 percent of total income.

Finally, there's the the data on loan payments as a percent of discretionary income:

Again you see a lot of 0 percent reports from schools where the median student isn't repaying, but also a lot of 100 percent reports. Those are, by and large, from schools where the average graduate (a) is not repaying and (b) has no discretionary income. And there are a lot of them.

The future of regulation of these schools looks grim, with a federal judge striking down even the modest rules imposed by the Obama administration last week. But the Education Department data shows they're taking a lot from their students and not providing much in return.

 

(The Washington Post owns Kaplan, which runs a for-profit college service.)

 

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Dylan Matthews · July 12, 2012